Experts praise government's steps to reduce debt
JAKARTA (JP): Economists praised on Wednesday the government's plan to reduce the country's sovereign debt, saying the move had to be made if Indonesia wanted to get out of its current debt trap.
"As a policy, reducing sovereign debt is the right move," Citibank economist Anton Gunawan told The Jakarta Post.
Economist Umar Juoro of the Association of Indonesian Muslim Intellectuals (ICMI) also hailed the government's move as "very important and necessary" in order to revive the country's economy.
"This is a very important and necessary move," said Juoro, adding that the government had to gradually reduce the ratio of debt to gross domestic product (GDP), which, according to him, was roughly equal.
He expressed optimism that if the government started reducing the debt-GDP ratio now, the country could get out of the current debt trap by the year 2010, three years later than targeted prior to the onset of the economic crisis.
Gunawan, however, pointed out that Indonesia could not ask donor countries to reduce the country's sovereign debt, even the debt incurred during the administration of former iron-fisted ruler Suharto.
"If debt reduction means asking donor countries to reduce Indonesia's sovereign debt, it is impossible to do so," said Gunawan.
"The most Indonesia can do is to ask donor countries to reschedule those of its debts that are set to mature over the next two years," he said.
Under the Paris Club II agreement, donor countries rescheduled Indonesian sovereign debt maturing this year worth US$5.8 billion.
Anti-foreign debt activists and non-governmental organizations here claim that close to US$30 billion of the government's total sovereign debt went to corrupt government officials during the Suharto regime. They also demand that international lending agencies like the International Monetary Fund, the World Bank and the Asian Development Bank be held accountable for the leakages.
On Tuesday, State Minister for National Development Planning Kwik Kian Gie said that the government would work to reduce its foreign debt burden.
But he also said that the government was seeking more than $4.1 billion in financial assistance from the members of the Consultative Group on Indonesia (CGI), who are scheduled to meet in Jakarta in November.
Last year, the CGI pledged $4.1 billion in financial aid and another $500 million in grants to Indonesia.
Legislator Zulfan Lindan of the Indonesian Democratic Party of Struggle (PDI-P) said that given the current situation, it would be impossible for the country to free itself from its dependence on foreign loans.
"How would we finance our budget?" he asked rhetorically, adding that the country's mining sector and state-owned enterprises could not be expected to finance the budget.
According to Gunawan, Indonesia can reduce its dependency on sovereign debt by increasing domestic revenue, especially from taxes, in order to create a budget surplus which can be used to repay the debt.
"Tax revenue can still be boosted provided the government improves its tax administration and minimizes leakages," he said.
The government could also sell the assets currently held by the Indonesian Bank Restructuring Agency (IBRA) to repay both domestic and sovereign debts.
Set up at the height of Indonesia's economic crisis to recover government loans to the country's real sector, IBRA is currently managing assets worth over Rp 600 trillion.
"The government needs cash flow; it also has assets at its disposal that can be sold to repay its debts," said Gunawan, adding that the sale of IBRA-held assets had been slow due to the strong vested interests of certain groups.
He also urged the government to ask donor countries to swap loans for grants in exchange for nature conservation.
"We can seek a debt swap such as a debt-for-nature conservation swap," he said. (03)